Making Interest Expense Tax Deductible

Posted on December 28, 2011 by admin | Posted in Tax Tips

Interest is deductible for tax purposes only if it is paid on money borrowed to earn business or property income. Interest on loans to finance personal expenditures such as a house, car, cottage and home improvements is not deductible. Interest on money borrowed to make an RRSP contribution is also not deductible.

The interest on your home mortgage is not normally deductible for tax purposes unless the funds from the mortgage loan were used to finance business or investments rather than the purchase of your home. If, for example you have funds accumulated to buy investments, you could simply pay down the house mortgage with available funds and borrow funds to be used to finance the investments. The result would be a decrease in non-deductible mortgage interest and an increase in deductible investment interest.

If you are in a position to pay down the amount of a loan you should always pay down non-deductible borrowings first.